For a lot of debtors, the most difficult part of the bankruptcy process is arriving at the decision to do so. If you’re seriously considering filing for bankruptcy or if you’re still on the fence about it, you probably get this one. Surely, you’re concerned about the effects of filing for bankruptcy. You’re likely curious about the advantages as well.
In regard to filing for bankruptcy relief, the effects depend on the type of bankruptcy you file. If you have a significant amount of unsecured debt, such as medical and credit card debt, it will be important for you to know how a Chapter 7 vs. Chapter 13 would impact your financial situation overall so you can make the right choice.
Effects of a Chapter 7 Bankruptcy
Chapter 7 is a highly-sought-after bankruptcy because it allows debtors to erase or “wipe out” many types of debts. When you file a Chapter 7 bankruptcy, a bankruptcy trustee is assigned to your case. The bankruptcy trustee is responsible for liquidating your non-exempt assets (if any) and using the proceeds to pay off as much of your debt as possible.
Bear in mind that many bankruptcies are “no-asset” cases and the debtor doesn’t have to give up anything. If you have significantly more debt than liquidated funds to pay it off, most, if not all of your leftover debts will be discharged depending on the types of debts that you have.
Certain debts are not dischargeable in bankruptcy, such as child support, spousal support, recent taxes, student loan debt, recent major purchases, criminal penalties (fines), and contractual purchases that involve land or automobiles.
Chapter 7 does stay on your credit report for 10 years, but a Chapter 7 can be an excellent option if you can’t afford to repay your debts, if you are facing a lawsuit, or if you don’t qualify for a Chapter 13.
Effects of a Chapter 13 Bankruptcy
With a Chapter 13 bankruptcy, your debts are reorganized and you’re placed on a repayment plan that lasts 3 to 5 years. You could end up paying anywhere between 10 and 100 percent of your debt depending on the type of debt you have and your income. Like Chapter 7, certain debts can’t be reduced or eliminated with Chapter 13, and this includes child support, spousal support, and criminal fines.
As far as the effects, Chapter 13 stays on your credit report for 7 years, which is a shorter period than a Chapter 7. Chapter 13 is a good option if you want to save your home from foreclosure or if your income is too high and you don’t qualify for a Chapter 7.